Author Topic: What should I do with $170K? Should I pay off my mortgage?  (Read 1371 times)

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3714
  • Location: WDC
What should I do with $170K? Should I pay off my mortgage?
« on: November 02, 2020, 06:51:17 AM »
I just sold my investment condo and am currently sitting on $170K, which will earn about $100/month in my savings account. 

I'm 1-2 years away from FIRE.  My LNW is enough to retire now, if I sell my primary clown-home in a HCOL and pick a smaller home. 

Because I'm so close to the end goal, I would kick myself if I lost any of it.  My risk tolerance is very low right now.  So I'm sitting on this cash and it's unlikely that I'll do anything with any risk because there are so many unknowns.  One thing I do know is that if I paid off my mortgage ($150K left), I'd save about $500 month in interest payments for the next few years.  But I plan on selling this home within a few months anyway. 

Should I just let this money sit in the bank and wait until a market dip, when I may invest 3% every few months because I'm too chicken to do anything else?  Or should I pay off the mortgage completely and stop paying interest? 

JLee

  • Walrus Stache
  • *******
  • Posts: 6858
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #1 on: November 02, 2020, 07:38:08 AM »
Quote
Because I'm so close to the end goal, I would kick myself if I lost any of it.

What is your targeted withdrawal rate?

zolotiyeruki

  • Magnum Stache
  • ******
  • Posts: 4366
  • Location: State: Denial
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #2 on: November 02, 2020, 07:55:40 AM »
Paying off your mortgage makes selling the home just a little bit easier (one fewer party involved in the transaction).  And saving $6k on a $150k investment is about a 4% guaranteed return, which ain't bad.  Having the house paid off means that you could potentially pay cash for your new, smaller home once you sell, which gives you an advantage in this supply-constrained market.

You'll need to weigh those advantages against these disadvantages:  you won't have as much cash on hand for the down payment on your new home until you sell your big house.  You'll potentially give up on market gains.  It sounds like you're trying to time the market, which is very likely to fail.

You might consider dollar-cost-averaging the whole sum over, say, 12 months.  That's plenty to ride out volatility, without giving up too much potential gains.  Depositing 3% every few months means it'd take you eight years to get it all in, and you'd be giving up *loads* of potential returns.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3714
  • Location: WDC
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #3 on: November 02, 2020, 08:08:22 AM »
Quote
Because I'm so close to the end goal, I would kick myself if I lost any of it.

What is your targeted withdrawal rate?

4%. 

JLee

  • Walrus Stache
  • *******
  • Posts: 6858
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #4 on: November 02, 2020, 08:10:40 AM »
Quote
Because I'm so close to the end goal, I would kick myself if I lost any of it.

What is your targeted withdrawal rate?

4%.

Can you still ER at 4% with this not in the market?

mozar

  • Magnum Stache
  • ******
  • Posts: 3455
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #5 on: November 02, 2020, 08:20:07 AM »
If you want to time the market, we are currently in a dip. You have until tomorrow to take advantage of election uncertainty.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3714
  • Location: WDC
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #6 on: November 02, 2020, 08:41:41 AM »
Quote
Because I'm so close to the end goal, I would kick myself if I lost any of it.

What is your targeted withdrawal rate?

4%.


Can you still ER at 4% with this not in the market?

Yes, as long as there is no major market crash. 
Which actually means that I shouldn't stress too much about this and I should prob just get it invested sooner rather than later. 

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3714
  • Location: WDC
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #7 on: November 02, 2020, 08:45:00 AM »

You might consider dollar-cost-averaging the whole sum over, say, 12 months.  That's plenty to ride out volatility, without giving up too much potential gains.  Depositing 3% every few months means it'd take you eight years to get it all in, and you'd be giving up *loads* of potential returns.

Yes, this would be what my IP tells me to do, but I am notoriously bad at following it.  Whenever I have big chunks of money to DCA, I make a plan, schedule for it, and then start accelerating it until I can't take it any longer and then dump it all in on one day.  That typically ends up being a terrible day, and I often think I should be the new "worst market timer in the world".  But like the story, it all has worked out even though I pick the worst possible time up until that point. 



cdgreg

  • 5 O'Clock Shadow
  • *
  • Posts: 35
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #8 on: November 04, 2020, 08:21:44 PM »
I just sold my investment condo and am currently sitting on $170K, which will earn about $100/month in my savings account. 

I'm 1-2 years away from FIRE.  My LNW is enough to retire now, if I sell my primary clown-home in a HCOL and pick a smaller home. 

Because I'm so close to the end goal, I would kick myself if I lost any of it.  My risk tolerance is very low right now.  So I'm sitting on this cash and it's unlikely that I'll do anything with any risk because there are so many unknowns.  One thing I do know is that if I paid off my mortgage ($150K left), I'd save about $500 month in interest payments for the next few years.  But I plan on selling this home within a few months anyway. 

Should I just let this money sit in the bank and wait until a market dip, when I may invest 3% every few months because I'm too chicken to do anything else?  Or should I pay off the mortgage completely and stop paying interest?

1 vote for pay the mortgage off.  As others said, it's a guaranteed X% return based on your interest rate each month, it will make the sale easier, and if your few months ends up turning into a year no big deal.  If you really regret it after a couple months you could always re-mortgage lol or pull it back out at the time of the house sale. 

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8271
  • Location: Fayetteville, NC
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #9 on: November 04, 2020, 10:09:26 PM »
Selling a house that you've paid off or that still has a mortgage is an identical process for YOU.  It's less work for your lawyer if you have paid off your house already.   More accurately, maybe it's less work for the lawyer,  because the  mortgage company may not have released the lien as they should have.    To my mind, this is a bogus criteria for making this decision.

You said you're selling your house off in a few months.   Do you mean less than 6 months?   

Are you planning on buying a new home that will require a big downpayment?   Will you need this money to do that?   I would advise against putting yourself into that position.   Likewise, I would also advise against putting it in the stock market if you'll need it in two years.  A 40% drop for a couple of years won't matter 10 years from now but it sure could wallop your new home buying plans during that drop.

As far as I can tell, if you owe $10k or $150K on your house, the mortgage company will still treat them the same when computing the debt to income ratio.   I don't think a partial payment on the mortgage to really lower the balance will help you get a new mortgage because the payment will remain the same.


ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3564
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #10 on: November 04, 2020, 10:30:51 PM »
By holding the cash, you put yourself in a position where you could buy and renovate a fixer upper, or make lowball cash offers until one is accepted. You can also take your time shopping, because you have the funds to carry two houses at once (also makes moving easier).

How much is it worth to have a home all fixed up and customized to your tastes, or to get a great deal?

Laura33

  • Magnum Stache
  • ******
  • Posts: 2921
  • Location: Mid-Atlantic
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #11 on: November 05, 2020, 06:14:15 AM »
What is your planned asset allocation post-FIRE?  Are you planning to have some portion in bonds or cash?  Or are you planning on just having everything invested in the market and selling at periodic intervals?

I think immediate pre-FIRE planning is different than the "getting to FIRE" planning, because now you have to worry about market drops and where to withdraw from and all that.  IOW, your priorities shift from solely growth to some combination of growth and risk mitigation (i.e., avoiding massive losses that would send you back to work).

So for me, for example, I plan to have a couple of years' expenses in CDs or bonds, to give me time to ride out market drops.  But I don't intend to start buying them until a couple of years before I call it quits, because I don't want that drag on performance while I'm in the growth-only priority phase.  So if that's your plan, then I think you are close enough to FIRE to just hang onto that cash -- you're now at the phase where you should be starting to compile those "safe" assets, so it's fair to use this windfall to do so.  OTOH, if your plan is to stay invested at a particular asset allocation, then you should deploy that cash now based on that AA.   

tl;dr:  what's your post-FIRE investment/withdrawal plan?  Execute that. 

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3714
  • Location: WDC
Re: What should I do with $170K? Should I pay off my mortgage?
« Reply #12 on: November 16, 2020, 10:23:00 AM »
What is your planned asset allocation post-FIRE?  Are you planning to have some portion in bonds or cash?  Or are you planning on just having everything invested in the market and selling at periodic intervals?

I think immediate pre-FIRE planning is different than the "getting to FIRE" planning, because now you have to worry about market drops and where to withdraw from and all that.  IOW, your priorities shift from solely growth to some combination of growth and risk mitigation (i.e., avoiding massive losses that would send you back to work).

So for me, for example, I plan to have a couple of years' expenses in CDs or bonds, to give me time to ride out market drops.  But I don't intend to start buying them until a couple of years before I call it quits, because I don't want that drag on performance while I'm in the growth-only priority phase.  So if that's your plan, then I think you are close enough to FIRE to just hang onto that cash -- you're now at the phase where you should be starting to compile those "safe" assets, so it's fair to use this windfall to do so.  OTOH, if your plan is to stay invested at a particular asset allocation, then you should deploy that cash now based on that AA.   

tl;dr:  what's your post-FIRE investment/withdrawal plan?  Execute that.
Great advice Laura.  You're right.  I think I'll just sit on it for a while and maybe get some of it working for me again as I accumulate more cash.